投资学第7版Test Bank答案08.docx

投资学第7版Test Bank答案08.docx

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投资学第7版TestBank答案08

MultipleChoiceQuestions

1.Asdiversificationincreases,thetotalvarianceofaportfolioapproaches____________.

A）0

B）1

C）thevarianceofthemarketportfolio

D）infinity

E）noneoftheabove

Answer:

CDifficulty:

Easy

Rationale:

Asmoreandmoresecuritiesareaddedtotheportfolio,unsystematicriskdecreasesandmostoftheremainingriskissystematic,asmeasuredbythevarianceofthemarketportfolio.

2.Theindexmodelwasfirstsuggestedby____________.

A）Graham

B）Markowitz

C）Miller

D）Sharpe

E）noneoftheabove

Answer:

DDifficulty:

Easy

Rationale:

WilliamSharpe,buildingontheworkofHarryMarkowitz,developedtheindexmodel.

3.Asingle-indexmodeluses__________asaproxyforthesystematicriskfactor.

A）amarketindex,suchastheS&P500

B）thecurrentaccountdeficit

C）thegrowthrateinGNP

D）theunemploymentrate

E）noneoftheabove

Answer:

ADifficulty:

Easy

Rationale:

Thesingle-indexmodelusesamarketindex,suchastheS&P500,asaproxyforthemarket,andthusforsystematicrisk.

4.TheSecurityRiskEvaluationbookpublishedbyMerrillLynchreliesonthe__________mostrecentmonthlyobservationstocalculateregressionparameters.

A）12

B）36

C）60

D）120

E）noneoftheabove

Answer:

CDifficulty:

Easy

Rationale:

Mostpublishedbetasandotherregressionparameters,includingthosepublishedbyMerrillLynch,arebasedonfiveyearsofmonthlyreturndata.

5.TheSecurityRiskEvaluationbookpublishedbyMerrillLynchusesthe__________asaproxyforthemarketportfolio.

A）DowJonesIndustrialAverage

B）DowJonesTransportationAverage

C）S&P500Index

D）Wilshire5000

E）noneoftheabove

Answer:

CDifficulty:

Easy

Rationale:

TheMerrillLynchdata（andmuchoftheotherpublisheddatasets）arebasedontheS&P500indexasamarketproxy.

6.Accordingtotheindexmodel,covariancesamongsecuritypairsare

A）duetotheinfluenceofasinglecommonfactorrepresentedbythemarketindexreturn

B）extremelydifficulttocalculate

C）relatedtoindustry-specificevents

D）usuallypositive

E）AandD

Answer:

EDifficulty:

Easy

Rationale:

Mostsecuritiesmovetogethermostofthetime,andmovewithamarketindex,ormarketproxy.

7.TheinterceptcalculatedbyMerrillLynchintheregressionequationsisequalto

A）αintheCAPM

B）α+rf（1+β）

C）α+rf（1-β）

D）1-α

E）noneoftheabove

Answer:

CDifficulty:

Moderate

Rationale:

TheinterceptthatMerrillLynchcallsalphaisreally,usingtheparametersoftheCAPM,anestimateofa+rf（1-b）.Theapparentjustificationforthisprocedureisthat,onamonthlybasis,rf（1-b）issmallandisapttobeswampedbythevolatilityofactualstockreturns.

8.Analystsmayuseregressionanalysistoestimatetheindexmodelforastock.Whendoingso,theslopeoftheregressionlineisanestimateof______________.

A）theαoftheasset

B）theβoftheasset

C）theσoftheasset

D）theδoftheasset

E）noneoftheabove

Answer:

BDifficulty:

Moderate

Rationale:

Theslopeoftheregressionline,b,measuresthevolatilityofthestockversusthevolatilityofthemarket.

9.Inafactormodel,thereturnonastockinaparticularperiodwillberelatedto_________.

A）firm-specificevents

B）macroeconomicevents

C）theerrorterm

D）bothAandB

E）neitherAnorB

Answer:

DDifficulty:

Moderate

Rationale:

Thereturnonastockisrelatedtobothfirm-specificandmacroeconomicevents.

10.RosenbergandGuyfoundthat__________helpedtopredictafirm'sbeta.

A）thefirm'sfinancialcharacteristics

B）thefirm'sindustrygroup

C）firmsize

D）bothAandB

E）A,BandCallhelpedtopredictbetas.

Answer:

EDifficulty:

Moderate

Rationale:

RosenbergandGuyfoundthataftercontrollingforthefirm'sfinancialcharacteristics,thefirm'sindustrygroupwasasignificantpredictorofthefirm'sbeta.

11.Iftheindexmodelisvalid,_________wouldbehelpfulindeterminingthecovariancebetweenassetsKandL.

A）βk

B）βL

C）σM

D）alloftheabove

E）noneoftheabove

Answer:

DDifficulty:

Moderate

Rationale:

IftheindexmodelisvalidA,B,andCaredeterminantsofthecovariancebetweenKandL.

12.RosenbergandGuyfoundthat___________helpedtopredictfirms'betas.

A）debt/assetratios

B）marketcapitalization

C）varianceofearnings

D）alloftheabove

E）noneoftheabove

Answer:

DDifficulty:

Moderate

Rationale:

RosenbergandGuyfoundthatA,B,andCweredeterminantsoffirms'betas.

13.Ifafirm'sbetawascalculatedas0.6inaregressionequation,MerrillLynchwouldstatetheadjustedbetaatanumber

A）lessthan0.6butgreaterthanzero.

B）between0.6and1.0.